A business model is a plan for a business's successful operation that identifies the intended customer base, product description, revenue source, and other details of financing. For startups to realize success, there is a need to develop a useful business model. In this article, we explore the various business models startups can develop.
The freemium model is among the most popular business models for startups; it combines premium and free services into one business model using a tiered approach. The business model's premium components allow startups to create a premium service that offers more features than the free service. In contrast, the free services provided to everyone usually includes the essential elements of the service.
For example, if your startup is centered around graphic design, in a freemium model you could start by offering a free package that includes essential design services, like free 1 hour consultation. The premium package that goes top up can have additional features and unlimited design revisions to incentivize potential clients to upgrade their basic package.
It is essential to balance both the free and premium tiers when you decide to go with this model. Startups would want to allow target customers to assess their free services and gently upsell them the paid premium version.
This type of business model allows proprietors to act as the go-between for buyers and sellers; the business simply serves as the facilitator of transactions between buyers and sellers. Amazon is a prime example for this business model.
The marketplace business model is attractive as there is no need for inventory storage, and there will be no overhead costs. You can save a significant amount of overhead expenses and certain logistic frustrations that generally come with running a business with a large inventory.
If you decided to go with this business model, your focus should be on striving to build trust in your market place through keeping up a healthy customer service reputation and getting a widest variety of choices at lowest values.
The disintermediation business model is also known as the model that leaves the middleman out. By having the intermediary out, there can be a significant cost deduction for customers, offering a competitive price.
For startups with this particular business model, it is recommended for them to engage in direct sales to capitalize on their pricing strength.
As the name suggests, startups with this business model provide clients with goods and services only upon requests.
One prominent advantage of the on-demand is the flexibility of supply and remuneration. There is this inherent ability to adapt to demand fluctuations by changing supply via remuneration changes. Matching supply with demand on the fly also permits flexible allocation of the workforce.
Uber is a good example of this model. It allows clients to request a ride and be picked by a driver. The on-demand business model may be ideal for startups looking to cater to a smaller population that needs convenience or quick gratification.
This model is also self-explanatory. Any businesses that sell goods or services on a subscription instead of a one-off basis is under the subscription model.
Using the subscription model, startups are safeguarded from irregular cash flows in the future which may prove to be better support for their financial health.
Startups here are advised to target customers who are intending to use their products regularly and do not mind signing up for the sake of convenience. This business model makes it simple to predict what the annual revenue will be like.
There is no one-size-fits-all approach when it comes down to choosing the right business model for a startup. It is advisable that one take a close look at their own value proposition for analysis before deciding on a preferred model.
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